1st Source Corporation Reports Record First Quarter Results
Increased
Cash Dividend Declared
- Net income was a record $22.20 million, up 16.11% over the first quarter of 2018. Diluted net income per common share was also a record of $0.86, up from the prior year’s first quarter of $0.73.
- Return on average assets increased to 1.43% and return on average common shareholders’ equity increased to 11.61% from 1.31% and 10.67%, respectively in the first quarter of 2018.
- Net charge-offs of $3.54 million and nonperforming assets to loans and leases of 0.49% compared to $0.34 million and 0.74%, respectively in the first quarter of 2018.
- Average loans and leases grew $269.40 million, up 5.87% from the first quarter of 2018.
- Average deposits grew $350.92 million, up 7.45% from the first quarter of 2018.
- Net interest income increased $4.42 million, up 8.74% from the first quarter of 2018.
- Noninterest income increased $0.32 million, up 1.33% from the first quarter of 2018 (increased 1.27% excluding leased equipment depreciation).
- Noninterest expenses decreased $0.35 million, down 0.77% from the first quarter of 2018 (decreased 1.15% excluding leased equipment depreciation).
1st Source
Corporation (NASDAQ: SRCE), parent company of 1st Source Bank, today reported a
record high net income of $22.20 million for the first quarter of 2019, an
improvement of 16.11% compared to $19.12 million reported in the first quarter
a year ago. The net income comparison was positively impacted by increased net
interest income of $4.42 million primarily due to higher loan rates and higher
average loan and lease balances. It was negatively impacted by a $1.13 million
increase in the provision for loan and lease losses to cover loan and lease
growth along with higher net charge-offs. Non-recurring 2019 items included a
negative $1.10 million valuation adjustment on a repossessed asset and $1.32
million gain on the sale of our former headquarters building.
Diluted net
income per common share for the first quarter of 2019 was a record high of
$0.86, versus $0.73 in the first quarter of 2018.
At its
April 2019 meeting, the Board of Directors approved a cash dividend of $0.27
per common share, up 12.5% from the $0.24 per common share declared a year ago.
The cash dividend is payable to shareholders of record on May 6, 2019 and will
be paid on May 15, 2019.
According
to Christopher J. Murphy III, Chairman, “1st Source Corporation had a strong
first quarter. We continue to achieve steady growth in net income and see
healthy increases in loans, leases, and deposits. Our biggest credit challenge
in the quarter was due to a further charge-off of $3.0 million on the large syndicated
aircraft account which I have mentioned previously. The remaining balance is
less than $1.0 million, payment of which is anticipated to come from a final
settlement of escrowed funds. The cost of resolving the complex issues of this
bankruptcy from legal, investment banking, and consulting fees has proven to be
exceedingly high. This reminds us we should be wary of complex lending
structures.”
“At 1st
Source, we value integrity, teamwork, superior quality, outstanding client
service, community leadership, true relationship banking and operating with
strong capital and reserves. We believe it is these values that differentiate
us from our competition, and it seems others have taken notice. In March, we
once again received the BauerFinancial ‘Superior’ Five-Star rating - the
highest rating possible. BauerFinancial bases its rating on capital ratio,
profitability/loss trend, credit quality and CRA ratings. We would not be able
to achieve high scores in such categories without conducting our daily business
with those values at the core of what we do.”
“Our focus
on smaller businesses continues to receive recognition across the state of
Indiana. For the sixth year in a row, we were honored with the ‘Gold Level
Award’ in the Community Lender’s category by the Small Business Administration.
This award honors 1st Source Bank as #1 among Indiana Community Banks with less
than $10 billion in assets for making the greatest number of SBA loans during
2018. We have devoted over 155 years to serving small businesses and maintain a
dedicated SBA department to ensure the highest level of service to our clients,
and this recognition confirms our strategic focus is successful.”
FIRST QUARTER 2019 FINANCIAL RESULTS
Loans
Average
loans and leases of $4.86 billion increased $269.40 million, up 5.87% in the
first quarter of 2019 from the year ago quarter and have increased $22.19
million, up 0.46% from the fourth quarter of 2018.
Deposits
Average
deposits of $5.06 billion grew $350.92 million, up 7.45% for the quarter ended
March 31, 2019 from the year ago quarter and have decreased $28.59
million, down 0.56% compared to the fourth quarter of 2018.
Net Interest Income and Net Interest Margin
First
quarter 2019 net interest income of $54.95 million increased $4.42 million, up
8.74% from the first quarter a year ago and decreased $0.90 million, down 1.60%
from the prior quarter.
First
quarter 2019 net interest margin was 3.78%, an improvement of nine basis points
from the 3.69% for the same period in 2018 and increased one basis point from
the fourth quarter of 2018. First quarter 2019 net interest margin on a fully
tax-equivalent basis was 3.79%, an increase of eight basis points from the
3.71% for the same period in 2018 and was higher by one basis point compared to
the prior quarter. With the Federal Reserve announcing rate increases will be
put on hold, interest margins may have reached their peak. Also, there is
significant competition for deposits with many local market participants
increasing their rates and there is considerable price competition for loans.
Noninterest Income
First
quarter 2019 noninterest income of $24.12 million increased $0.32 million, up
1.33% from the first quarter a year ago and was relatively flat from the fourth
quarter of 2018.
Noninterest
income during the three months ended March 31, 2019 was higher compared to
a year ago mainly from increased equipment rental income from an increase in
the average lease portfolio, higher insurance commissions primarily from
increased business and higher contingent commissions, and higher debit card
income from increased customer use. These positives were offset by reduced net
gains on partnership investments and lower trust and wealth advisory fees
resulting from a lower value of assets under management due to stock market
movements.
Noninterest Expense
First
quarter 2019 noninterest expense of $45.20 million was down slightly from the
first quarter a year ago and decreased $2.49 million, down 5.21% from the prior
quarter. Excluding depreciation on leased equipment, noninterest expenses were
down 1.15% from the first quarter a year ago and down 5.97% from the prior
quarter.
The
decrease in noninterest expense from the fourth quarter was primarily the
result of higher gains on the sale of fixed assets, reduced professional fees
from consulting services, and fewer group insurance claims offset by higher
repossessed asset valuation adjustments and lower gains on the sale of
repossessed assets.
Credit
The reserve
for loan and lease losses as of March 31, 2019 was 2.07% of total loans
and leases compared to 2.08% at December 31, 2018 and 2.10% at
March 31, 2018. Net charge-offs of $3.54 million were recorded for the
first quarter of 2019 compared with net charge-offs of $0.34 million in the
same quarter a year ago and up from the $2.53 million of net charge-offs in the
fourth quarter. The majority of the first quarter charge-offs was related to
one relationship within the aircraft portfolio. This account had experienced
significant charge-offs during the second half of 2018.
The
provision for loan and lease losses was $4.92 million for the first quarter of
2019, an increase of $1.13 million compared with the same period in 2018 and an
increase of $0.22 million from the fourth quarter. The ratio of nonperforming
assets to loans and leases was an improved 0.49% as of March 31, 2019,
compared to 0.71% on December 31, 2018 and 0.74% on March 31, 2018.
Capital
As of
March 31, 2019, the common equity-to-assets ratio was 12.20%, compared to
12.11% at December 31, 2018 and 11.99% a year ago. The tangible common
equity-to-tangible assets ratio was 11.03% at March 31, 2019 compared to
10.92% at December 31, 2018 and 10.75% a year earlier. The Common Equity
Tier 1 ratio, calculated under banking regulatory guidelines, was 12.28% at
March 31, 2019 compared to 12.38% at December 31, 2018 and 12.22% a
year ago.
ABOUT 1ST SOURCE CORPORATION
1st Source
common stock is traded on the NASDAQ Global Select Market under “SRCE” and
appears in the National Market System tables in many daily newspapers under the
code name “1st Src.” Since 1863, 1st Source has been committed to the success
of its clients, individuals, businesses and the communities it serves. For more
information, visit www.1stsource.com.
1st Source
serves the northern half of Indiana and southwest Michigan and is the largest
locally controlled financial institution headquartered in the area. While
delivering a comprehensive range of consumer and commercial banking services
through its community bank offices, 1st Source has distinguished itself with
highly personalized services. 1st Source Bank also competes for business
nationally by offering specialized financing services for new and used private
and cargo aircraft, automobiles for leasing and rental agencies, medium and
heavy duty trucks, and construction equipment. The Corporation includes 80
banking centers, 19 1st Source Bank Specialty Finance Group locations
nationwide, eight Wealth Advisory Services locations and ten 1st Source
Insurance offices.
FORWARD LOOKING STATEMENTS
Except for
historical information contained herein, the matters discussed in this document
express “forward-looking statements.” Generally, the words “believe,”
“contemplate,” “seek,” “plan,” “possible,” “assume,” “expect,” “intend,”
“targeted,” “continue,” “remain,” “estimate,” “anticipate,” “project,” “will,”
“should,” “indicate,” “would,” “may” and similar expressions indicate
forward-looking statements. Those statements, including statements,
projections, estimates or assumptions concerning future events or performance,
and other statements that are other than statements of historical fact, are
subject to material risks and uncertainties. 1st Source cautions readers not to
place undue reliance on any forward-looking statements, which speak only as of
the date made.
1st Source
may make other written or oral forward-looking statements from time to time.
Readers are advised that various important factors could cause 1st Source’s
actual results or circumstances for future periods to differ materially from
those anticipated or projected in such forward-looking statements. Such
factors, among others, include changes in laws, regulations or accounting
principles generally accepted in the United States; 1st Source’s competitive
position within its markets served; increasing consolidation within the banking
industry; unforeseen changes in interest rates; unforeseen downturns in the
local, regional or national economies or in the industries in which 1st Source
has credit concentrations; and other risks discussed in 1st Source’s filings
with the Securities and Exchange Commission, including its Annual Report on
Form 10-K, which filings are available from the SEC. 1st Source undertakes no
obligation to publicly update or revise any forward-looking statements.
NON-GAAP FINANCIAL MEASURES
The accounting and reporting
policies of 1st Source conform to generally accepted accounting principles
(“GAAP”) in the United States and prevailing practices in the banking industry.
However, certain non-GAAP performance measures are used by management to
evaluate and measure the Company’s performance. Although these non-GAAP
financial measures are frequently used by investors to evaluate a financial
institution, they have limitations as analytical tools, and should not be
considered in isolation, or as a substitute for analyses of results as reported
under GAAP. These include taxable-equivalent net interest income (including its
individual components), net interest margin (including its individual
components), the efficiency ratio, tangible common equity-to-tangible assets
ratio and tangible book value per common share. Management believes that these
measures provide users of the Company’s financial information a more meaningful
view of the performance of the interest-earning assets and interest-bearing
liabilities and of the Company’s operating efficiency. Other financial holding
companies may define or calculate these measures differently.
Management reviews yields on
certain asset categories and the net interest margin of the Company and its banking
subsidiaries on a fully taxable-equivalent (“FTE”) basis. In this non-GAAP
presentation, net interest income is adjusted to reflect tax-exempt interest
income on an equivalent before-tax basis. This measure ensures comparability of
net interest income arising from both taxable and tax-exempt sources. Net
interest income on a FTE basis is also used in the calculation of the Company’s
efficiency ratio. The efficiency ratio, which is calculated by dividing
non-interest expense by total taxable-equivalent net revenue (less securities
gains or losses and lease depreciation), measures how much it costs to produce
one dollar of revenue. Securities gains or losses and lease depreciation are
excluded from this calculation to better match revenue from daily operations to
operational expenses. Management considers the tangible common
equity-to-tangible assets ratio and tangible book value per common share as
useful measurements of the Company’s equity.
See the
table marked “Reconciliation of Non-GAAP Financial Measures” for a
reconciliation of certain non-GAAP financial measures used by the Company with
their most closely related GAAP measures.